Custodial deposit scheme
A custodial deposit scheme is a government-approved tenancy deposit protection arrangement in which the scheme provider holds the tenant's deposit for the whole tenancy, rather than the landlord. It is free to use, and the money is released to the landlord and tenant once they agree how it should be split at the end of the tenancy. The Deposit Protection Service, mydeposits and the Tenancy Deposit Scheme each offer a custodial option (GOV.UK).
How a custodial scheme works
The landlord collects the deposit as normal, then pays it to the scheme within 30 days of receiving it and serves the tenant with the prescribed information. The scheme holds the money in its own account for the duration of the tenancy. At the end, the landlord and tenant agree how much each should receive, and the scheme releases the funds accordingly. From working with self-managing landlords across the UK, the custodial route is the one most accidental and single-property landlords choose, because it removes the need to ring-fence the money themselves.
What a custodial scheme costs
A custodial scheme is free to use. There is no premium and no annual fee, which is the main reason it is the most widely used model. The trade-off is that the landlord does not hold the money during the tenancy and does not keep any interest it earns, since the scheme retains it. For a landlord with a single property this rarely matters, but for a portfolio it ties up working capital that an insured scheme would leave in the landlord's account.
How the deposit is returned
The deposit is released once both parties confirm the split through the scheme, which typically pays out within five to ten working days of agreement. If one party does not respond, the other can use the scheme's single-claim process. Where the two sides cannot agree on deductions, the scheme's free dispute resolution service decides the outcome and holds the disputed amount until it does.
Custodial or insured: which to choose
A custodial scheme keeps the money with the scheme, costs nothing, and carries the lowest admin, but the landlord earns no interest and release is slightly slower. An insured deposit scheme lets the landlord hold the money and return it directly, which is faster and frees up cash flow, but it charges a fee. Landlords using August consistently tell us the choice comes down to portfolio size: custodial for one or two tenancies, insured once the capital tied up across several deposits becomes material.
The legal position
Tenancy deposit protection is governed by sections 213 to 215 of the Housing Act 2004. Any deposit taken on an assured tenancy must be protected in an approved scheme, custodial or insured, within 30 days of receipt, with the prescribed information served in the same period. The deposit itself is capped at five weeks' rent, or six weeks where the annual rent exceeds £50,000, under the Tenant Fees Act 2019. This position is correct as of June 2026, following the commencement of the Renters' Rights Act 2025 on 1 May 2026.
Frequently asked questions
Is a custodial deposit scheme free?
Yes. Registering and holding a deposit in a custodial scheme costs the landlord nothing. The scheme funds itself from the interest earned on the deposits it holds.
Who holds the deposit in a custodial scheme?
The scheme provider holds it, not the landlord. The money sits in the scheme's account for the whole tenancy and is only released when both parties agree the split or a dispute is resolved.
How long does a custodial scheme take to repay?
Once both parties agree how the deposit should be divided, the scheme usually pays out within five to ten working days. A dispute referred to the scheme's resolution service takes longer.
